Reuter Avionics currently sells radios for $1,800.It has costs of $1,400.A competitor is bringing a new
radio to market that will sell for $1,600.Management believes it must lower the price to $1,600 to
compete in the market for radios.Marketing believes that the new price will cause sales to increase by
10%, even with a new competitor in the market.Reuter's sales are currently 1,000 radios per year.Required:
a.What is the target cost if target operating income is 25% of sales?
b.What is the change in operating income if marketing is correct and only the sales price is changed?
c.What is the target cost if the company wants to maintain its same income level, and marketing is correct?

Question

Quizplus · Accepted Answer

The Answer of Reuter Avionics currently sells radios for $1,800.It has costs of $1,400.A competitor is bringing a new
radio to market that will sell for $1,600.Management believes it must lower the price to $1,600 to
compete in the market for radios.Marketing believes that the new price will cause sales to increase by
10%, even with a new competitor in the market.Reuter's sales are currently 1,000 radios per year.Required:
a.What is the target cost if target operating income is 25% of sales?
b.What is the change in operating income if marketing is correct and only the sales price is changed?
c.What is the target cost if the company wants to maintain its same income level, and marketing is correct?

Reuter Avionics Currently Sells Radios for $1,800